WTO BOXES EXPLAINED

 

Introduction

• The World Trade Organization (WTO) compares the “boxes” it uses for classifying trade subsidies (Domestic Trade Support) to traffic lights.
• When it comes to agricultural trade and commodity subsidies, however, it's not that simple.
• While the “green box” does roughly translate into a green “go” signal, and amber could be considered a cautionary light, there is no red box.
• In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden).
• “Blue box,” which is used for what the organization considers production-limiting programs.
• In addition, there are exemptions for many of the boxes, including those designed to help make developing countries more trade competitive.

Trade Distortion Trade distortion is commonly viewed as any interference that significantly affects prices or market behavior. A tax or action that changes the normal characteristics of trade. For example, many governments subsidize the agricultural sector, which sometimes makes farming economically feasible, at least for certain products. The subsidies can mean farmers gain artificially high prices for their products. Some experts believe that trade-distorting agricultural subsidies are partly responsible for increases in global food prices.

 

Green box

• Agriculture-related subsidies that fit in WTO's green box are policies that are not restricted by the trade agreement because they are not considered trade distorting.
• To qualify for the green box, WTO says a subsidy must not distort trade, or at most cause minimal distortion.
• These green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support.
• They tend to be programs that are not directed at particular products, and they may include direct income supports for farmers that are decoupled from current production levels and/or prices.
• Examples: environmental and conservation programs, research funding, inspection programs, domestic food aid including food stamps, and disaster relief.

Amber box

• Agriculture's amber box, according to the WTO, is used for all domestic support measures considered to distort production and trade.
• As a result, the trade agreement calls for committing to reduce their trade-distorting domestic supports that fall into the amber box.
• WTO members without these commitments are required to maintain their amber box supports to within five to 10 percent of their value of production.
• For Developed Countries: 10%
• For Developing Countries: 5%
• Any support payments that are considered to be trade distorting and are subject to limitations and disciplines fall into the amber box.

Blue box

• Included in the blue box are any support payments that are not subject to the amber box reduction agreement because they are direct payments under a production limiting program.
• To be blue box policies, direct payments must be made on fixed areas and yields, or payments must be made on 85 percent or less of the base level of production.
• Livestock payments must be on a fixed number of head.
• The blue box is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal levels.
• It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land.